Aames Financial Corporation Reports Net Income of $1.0 Million for the Three Months Ended December 31, 2000; Securitizes $471.5 Million of Mortgage Loans

Business Wire, Feb 5, 2001

Business Editors

LOS ANGELES--(BUSINESS WIRE)--Feb. 5, 2001

Aames Financial Corporation (NYSE:AAM), a leader in subprime home equity lending, today reported results of operations for the three and six months ended December 31, 2000, announcing net income of $1.0 million and $1.7 million, respectively, compared to a net loss of $47.7 million and $46.9 million, respectively, which included a $35.2 million write-off of residual assets and mortgage servicing rights, during the comparable three and six month periods a year ago.

After the required accrual for the convertible preferred stock dividend of $3.2 million and $6.4 million during the three and six months ended December 31, 2000, the net loss to common stockholders was $2.2 million and $4.7 million, respectively, which compares to the net loss to common stockholders of $49.7 million and $50.5 million during the three and six months ended December 31, 1999, respectively, after the required accrual for the convertible preferred stock dividend of $2.0 million and $3.6 million, respectively, during the comparable three and six month periods in 1999. Net loss per common share was $0.36 and $0.76 for the three and six months ended December 31, 2000, respectively, compared to a net loss per common share of $8.01 and $8.14 during the comparable three and six month periods in 1999, respectively.

In making the announcement, A. Jay Meyerson, Aames' Chief Executive Officer, stated, "I believe the operating results for the three and six months ended December 31, 2000 reflect management's ongoing execution of the Company's turnaround plan. The Company's increase in core retail and broker loan production, including Internet production, as well as our continued focus on operating costs and credit quality at all levels throughout the organization are contributing to this quarter's improved results. The improvement in the efficiency of the Company's operations, and reduced noninterest expense have contributed to lower loan origination costs, which is a critical success factor in the new subprime marketplace."

Securitization

The Company completed a $471.5 million mortgage loan securitization during the December 2000 quarter, its second consecutive quarterly securitization. Meyerson stated, "We are pleased that we achieved improved execution in our securitization and whole loan trades quarter over quarter. The Company has been diligently working to improve the credit quality and value of the loans it produces. We believe that those efforts are now being recognized by our capital markets and whole loan counterparties."

Increased Funding Capacity

The Company also reported that it has increased its funding capacity by increasing its revolving warehouse and repurchase facilities to $800.0 million and procuring concurrent funding to fund its loans at closing.

On January 24, 2001, the Company renewed an existing $200.0 million committed revolving warehouse facility to February 2002, increasing capacity under the facility to $300.0 million, and added a subline to provide concurrent funding of loan production at closing of up to $40.0 million. During the quarter ended December 31, 2000, the Company renewed another existing $200.0 million committed revolving repurchase facility for a period of six months with a new maturity of May 31, 2001. Mr. Meyerson said, "Our ability to use the concurrent funding facility instead of cash to fund a majority of our loan production at closing will increase our funding capacity."

Continued Liquidity Management

On January 5, 2001, the Company sold to an affiliate for cash the residual asset created in the December 2000 securitization under its residual forward sale facility. "The sale of the residual interest provides additional liquidity to the Company and eliminates the negative cash flow traditionally experienced by the Company in securitizations," said Meyerson. The Company also sold the servicing rights and prepayment penalties associated with the loans underlying the securitization.

Finally, the Company sold at par and for cash $10.0 million of servicing advances to an investment bank. This transaction continues the Company's previously announced efforts of converting its servicing advance receivables into cash as a means of managing its overall liquidity position.

Summary of Financial Results

Total revenues

Total revenue increased $8.9 million and $7.9 million to $57.0 million and $116.9 million during the three and six months ended December 31, 2000, respectively, from total revenue of $48.1 million and $109.0 million during the three and six months ended December 31, 1999, respectively, excluding the $35.2 million write-down to the Company's residual interests and mortgage servicing rights recorded during the three and six months of December 31, 1999. The $8.9 million increase in total revenue during the three months ended December 31, 2000 from the same period a year ago resulted primarily from increases of $9.1 million and $2.0 million in gain on sale of loans and origination fees, respectively, partially offset by a $2.1 million decrease in interest income. The $7.9 million increase in total revenue during the six months ended December 31, 2000 from the comparable six month period in 1999 resulted primarily from increases of $7.2 million and $2.9 million in gain on sale of loans and origination fee income, partially offset by a $2.8 million decline in interest income.